At the same time, though, it raised questions about safe haven investments.

Principally, if U.S. Treasuries are no longer an investment safe haven, then where can cautious investors safely store their capital?

The market's initial reaction to the S&P announcement was typical of its trader-dominated nature. Stocks dropped and gold rose – but U.S. Treasury bond prices actually rose, as well.

Traders took the view that S&P's action had increased the chances that Congress would come together and produce a compromise solution to reduce the budget deficit and restore the U.S. credit rating to a sound footing.

Given that belief, it is clear that U.S. Treasuries are no longer a safe haven. And in my view, they haven't been for some time. The monetary policies of former U.S. Federal Reserve Chairman Alan Greenspan and current Federal Reserve Chairman Ben S. Bernanke have been tending towards the inflationary since 1995.

For more than a decade, the inflation those policies should have produced has been suppressed by the deflating effect of the second wave of globalization, which has reduced the cost of innumerable imported goods.

However, as we look at Chinese wage inflation of 20%, it is becoming clear that this benign suppression of the inflation we deserve is coming to an end. Hence, U.S. Treasuries fail as a safe haven for two reasons: They are vulnerable to default in the long term and a loss of purchasing power in the short term.

If that's obvious to us, it must be equally obvious to the Asian central banks and Middle Eastern oil billionaires that have been propping up the U.S. Treasury market for the last three years. It's also probably obvious to the U.S. Federal Reserve, which has been propping up the Treasury market through its quantitative easing programs. Thus, an awful lot of money is currently looking for a new safe haven.

The conventional safe haven from the travails of the dollar has long been gold.

Those that have trusted in the yellow metal so far have done very well. Its price has risen from around $250 an ounce a decade ago to its current level of more than $1,500 an ounce. The same is true for silver, which has experienced an equally impressive surge. These two metals continue to be a safe bet for investors going forward.

Traditionally gold has been limited to 5% to 10% of a portfolio's holdings, but today's conditions of monetary uncertainty warrant higher proportions – perhaps up to one-third is justified.

But be warned: To go any further than that would transform gold from a safe haven to a risky asset, because the world's monetary authorities will at some point get serious about the rising level of inflation, and gold prices will crash.

Remember, it took former Federal Reserve Chairman Paul Volcker less than four months – from October 1979 to January 1980 – to stymie gold's record-setting advance after he decided to squash inflation. Gold's fallback thereafter was both swift and massive, as the metal lost two-thirds of its value over the next five years.

Safe Haven Investments Around the Globe

Outside of gold, safe haven investments are few and far between.

Japan, which used to be considered a haven, has an even worse debt problem than the United States. Australia and Canada, the rich countries with substantial commodity economies, will suffer if commodity prices fall, and both have succumbed – at least in part – to the global mania for fiscal and monetary stimulus.

They all are also on the small side for Asian central banks and oil billionaires, and their government bond markets are somewhat illiquid by People's Bank of China standards.

However, there is one country that has refrained from stimulus – whose finance minister described stimulus as "crass Keynesianism" as early as December 2008. It has a strong economy based largely on manufacturing, steady growth, and a balance of payments surplus based on the success of its exporting industries.

You may object on the basis that Germany is tied to a bunch of economic losers through the European Union (EU), and more particularly the euro. However, as the strongest economy in the Eurozone, Germany's assent is essential for bailout deals, and it has already become clear that German politicians and taxpayers will not allow any deals that threaten Germany's own fiscal stability.

Also remember that not all the other EU countries are basket cases. In addition to traditionally strong economies such as France and the Netherlands, the EU now includes a number of rapidly growing Eastern European countries, such as Poland and Slovakia.

Politically too, Germany is not alone in objecting to massive bailouts. Finland (another strong economy) last month gave a record share of the vote to the True Finn party, which opposes all EU bailouts and greater EU spending generally speaking.

So unlike the United States and Japan, Germany has no need to impoverish itself, and is likely to remain strong.

Infuriatingly, there is still no mutual fund or exchange-traded fund (ETF) devoted to German government bonds available in the U.S. You can buy the bonds directly through a German bank, but the minimum investment is large – about $70,000 (50,000 euros).

There is an exchange-traded note (ETN) devoted to bund (German government bond) futures, the Power Shares DB German Bund Futures ETN (NYSE: BUNL). However, that's not the same thing as buying bunds directly; you have a credit risk on its sponsor, Deutsche Bank AG (NYSE: DB), a basis risk between futures and bonds, and a U.S. government credit risk because the ETN invests in futures contracts and U.S. T-bills – getting you right back where you started in terms of credit risk.

So, on the whole, you should avoid this.

In terms of shares for an individual investor, I'd recommend the iShares MSCI Germany ETF (NYSE: EWG). You might also look at the iShares MSCI Singapore ETF (NYSE: EWS) – that's probably the safest haven of all, since the country has hardly any government bonds outstanding!

Actions to Take: It's become increasingly clear that U.S. Treasuries are no longer a safe investment. If you really want to protect your investment dollars, you should look to Germany, a country that did not indulge in stimulus efforts and maintains a balance of payments surplus.

While investing in German bonds is extremely difficult, I believe a perfunctory investment the iShares MSCI Germany ETF (NYSE: EWG) is in order.

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Well some body with common sense. I have started to invest in German Stocks. I would like to find well run, long history of rump paying securities in German Swiss stock. So far SI seems to be well positioned Every, most every hospital has (SI) equipment. I first noticed in the Veterans Hospital.Note as the EURO becomes more weak, this should increase thier profits so 1)2 ways to win 2)German 3)weak Euro I am just a individual 64.My father said "too soon old, too late smart".

I feel that the safest place to keep your money is your own country, the usa, because it is close to you, if everyone thinks the same way as you are thinkiing is going to kill the usa economy, because the famous word is CONFIDENCE will be lost. and that can not be allowed.
germany is germany, who can tell wether the will engage in another war>? or have problems in the european union that have to go out of it>?
on top of that is too far to now what is going on there. regards
nestor g ramirez

Good morning, I live in Australia and totally agree with you about Australia….we are in a far deeper mess than we are being told about by the Government…..particularly as we now have a PM who is following the USA and we all know what the outcome will be…..if you dig deep you will find that Australia is already in AU$100 Billion of debt that we are not being told about and the Government is relying on the Mining Industry taxes to help which is only a band-aid job…Australia is BANKRUPT and is going to fall into a severe Recession very soon….so you should warn your Investors NOT to invest here in Australia unless they like losing money!!!

Hey Ventureshadow ! Of course it is, but on a per capita basis and allowing for our obviously smaller national economy, Ms J makes a good point. The high spending, Yank arse-sucking Labour (centre-left) government we have has left us highly exposed to Chinese resource demand.
I live in Western Australia, one of the 2 main resource rich states here and our federal government is counting on WA and Queensland states to carry the rest of the economy. If China suppresses wages / inflation by delaying or cancelling large infrastructure projects, their iron ore and coal demand goes down and we earn billions less in export revenue and mining royalties.
Of course, I hope this won't happen, or our "Boom Mark II" will be over before it begins. Mind you, all in all, I'm still glad I live in Australia and not the USA. :-) Cheers.

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